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  1. 1. Treasury Hot TopicTax rulings in Belgium - Secure the tax position of your treasury center<br /><br />Philippe Dedobbeleer, Belgian Ruling Commission<br />David Ledure, PwC <br />
  2. 2. Agenda<br />PART I: Functioning of the Ruling Commission<br />PART II: Flavour of treasury centre rulings<br /><br />
  3. 3. PART I: Functioning of the Ruling Commission<br />1. Introduction<br />2. History (in short)<br />3. Legal provisions<br />4. Pre filing<br />5. Formal Demand<br />6. Figures<br />7. Guidelines<br /><br />
  4. 4. Introduction<br />1<br />
  5. 5. Organisation<br />February 2011<br />5<br />
  6. 6. History<br />2<br />
  7. 7. 2. History (in short)<br /><ul><li>01.01.2003: creation of the legal base for a generalised system for advance decisions (law: 24th of December 2002)
  8. 8. 2005: Installation of the Autonomous Office (law: 21 of June 2004) entitled to issue all advance decisions in tax matters (direct and indirect taxation)</li></ul>February 2011<br />7<br />
  9. 9. Legal provisions<br />3<br />
  10. 10. 3. Legal Provisions<br />Advance decision:<br />a legal act whereby the Office for Advance Decisions determines, in accordance with the provisions in force, how the legal provisions will apply to a particular situation or transaction that has not yet produced any fiscal effect.<br />February 2011<br />9<br />
  11. 11. Pre filing<br />4<br />
  12. 12. 4. Pre filing<br /><ul><li>Could be described as a meeting prior to the introduction of a formal demand
  13. 13. Is an option - no obligation
  14. 14. Can be held with tax advisers on an anonymous base (identity of the applicant is not revealed)
  15. 15. Can lead to the introduction of a formal demand (possibly adapted to meet with the remarks made in the meeting)</li></ul>February 2011<br />11<br />
  16. 16. 4. Pre filing<br /><ul><li>Is very useful in complex operations or transactions and when different taxes -direct and indirect - are involved (ex: mergers and acquisitions);
  17. 17. Gives a first impression to the client of the point of view of the Office;
  18. 18. The local tax officer is not informed.</li></ul>February 2011<br />12<br />
  19. 19. 4. Pre filing<br />Request:<br /><ul><li>E-mail, letter or fax
  20. 20. indicates that it concerns a pre filing
  21. 21. Brief description of the intended operation or transaction
  22. 22. Indicates the taxes or tax sections concerned </li></ul>February 2011<br />13<br />
  23. 23. 4. Pre filing<br /><ul><li>The case is allocated to a member of the board
  24. 24. Appointment of a coordinator
  25. 25. Formation of a team to deal with the issue
  26. 26. The team leader is the main contact point
  27. 27. The same team deals eventually with the formal demand
  28. 28. The allocation depends on</li></ul>the language of the pre filing request<br />the taxes or sections of taxes involved<br />February 2011<br />14<br />
  29. 29. 4. Pre filing<br /><ul><li>Possibility to have one or more meetings;
  30. 30. Informal and constructive atmosphere
  31. 31. Is very to the point / useful / practical</li></ul>February 2011<br />15<br />
  32. 32. Formal demand<br />5<br />
  33. 33. 5. Formal Demand<br /><ul><li>E-mail, letter or fax
  34. 34. Strong preference for paperless filing (e-mail)
  35. 35. Explanations and information in English are accepted – the Office can require translation of relevant items of the formal demand </li></ul>February 2011<br />17<br />
  36. 36. 5. Formal Demand<br />The law requires that the formal demand contains;<br />the applicable tax sections for the taxes involved;<br />the identity of the applicants and of the parties involved in the operation or transaction;<br />description of the activities of the parties involved;<br /><ul><li>description of the intended operation or transaction;
  37. 37. extended motivation;
  38. 38. the fact that there is a formal demand going on in an other country or not (duplicate of the formal demand or decision to enclose)</li></ul>February 2011<br />18<br />
  39. 39. 5. Formal Demand<br />It is preferable that the client adds as much as information (documentation, explanations, motivation, …) as possible with the formal demand or with the request of pre filing. That gives the team a clear and clean preview of the operation or transaction.<br />February 2011<br />19<br />
  40. 40. 5. Formal Demand<br />Very flat structure<br />FOR EACH DEMAND :<br /><ul><li>Responsible member of the board
  41. 41. Appointment of a coordinator
  42. 42. Formation of a team
  43. 43. Team leader = responsible for the demand</li></ul>February 2011<br />20<br />
  44. 44. 5. Formal Demand<br />Within 5 working days after the receipt of the formal demand:<br /><ul><li>Acknowledgement of the receipt
  45. 45. Communication of the coordinator, team leader and team member(s) to the client.</li></ul>February 2011<br />21<br />
  46. 46. 5. Formal Demand<br />Within 15 working days after receipt of the formal demand:<br /><ul><li>first meeting with the applicant(s)</li></ul>informal and constructive<br />in-depth examination of the case<br />cooperation<br />February 2011<br />22<br />
  47. 47. 5.Formal Demand<br /><ul><li>In matters on principles: responsible member of the board is present
  48. 48. Proposition of a time schedule for the treatment of the demand
  49. 49. Possibility to have more than 1 meeting
  50. 50. More written info can be required
  51. 51. The Office can request an opinion from the central tax administration</li></ul>February 2011<br />23<br />
  52. 52. 5. Formal Demand<br />PROPOSITION OF DECISION<br /><ul><li>The responsible team submits a proposition of decision to the board
  53. 53. Team leader: responsible for the drawing up of the proposition (every team member is responsible for his own part)
  54. 54. Coordinator: supervises the team and explains/defends the teams position to the responsible member of the board</li></ul>February 2011<br />24<br />
  55. 55. 5. Formal Demand<br />The responsible member of the board validates the proposition and defends the proposition at the meeting of the board<br />Target period <br />decision within 3 months <br />February 2011<br />25<br />
  56. 56. 5. Formal Demand<br />THE BOARD<br /><ul><li>In principle: meeting every Tuesday
  57. 57. In principle: the decisions are taken by unanimous consent
  58. 58. Autonomy
  59. 59. The chairman/woman has a decisive vote
  60. 60. The chairman/woman and a member of the board sign the decision </li></ul>February 2011<br />26<br />
  61. 61. 5. Formal Demand<br />The decision binds the Fiscal Administration except when:<br /><ul><li>the applicant gave an incomplete or non-correct description of the operation or transaction
  62. 62. the applicant didn’t comply with the conditions or engagements of the decision
  63. 63. modification of the applicable legislation </li></ul>The decision is valid for 5 years (exceptions are possible)<br />February 2011<br />27<br />
  64. 64. 5. Formal Demand<br />AFTER THE DECISION<br /><ul><li>The decision is notified to the applicant
  65. 65. The local tax inspector receives a copy for verification of the correct implementation of the decision
  66. 66. Publication of the decisions on a no-name base (except: justified requests for non-publication) </li></ul>February 2011<br />28<br />
  67. 67. 5. Formal Demand<br />Areport is presented to theParliamentevery year (anonymity of applicants and parties concerned – statistics - the report is not made public)<br />February 2011<br />29<br />
  68. 68. Figures<br />6<br />
  69. 69. 6. Figures: Requests for pre filing meetings<br />February 2011<br />31<br />
  70. 70. 6. Figures: Formal Demands<br />February 2011<br />32<br />
  71. 71. Guidelines<br />7<br />
  72. 72. 7. Guidelines<br /><ul><li>Indicates the point of view the Office has towards some particular questions in consequence of earlier demands, jurisprudence, new (European) legislation, legal doctrine, experience …
  73. 73. Value: indicative. Not binding to the Administration. Only an instrument to facilitate the filing of a demand
  74. 74. Published on the website
  75. 75. Evolution
  76. 76. Until 30.09.2009: public consultation concerning guide line – drafts on specific topics. </li></ul>February 2011<br />34<br />
  77. 77. Conclusion<br />Collaboration is absolutely necessaryMISSION :<br />To be at service in a <br />quick and flexible way <br />to our clients<br />February 2011<br />35<br />
  78. 78. PART II: Flavour of treasury centre rulings<br />1. WHT exemption for intra-group financing companies<br />2. Waiver of NID<br />3. Waiver of debt<br />4. Transfer Pricing<br /> The subsequent slides represent PWC’s interpretation of some published rulings<br /><br />
  79. 79. WHT exemption for intra-group financing companies<br />1<br />
  80. 80. WHT exemption for intra-group financing companies<br />WHT on interest payments<br /><ul><li>Standard Belgian rate of 15%
  81. 81. Various exemptions available (based on domestic, international and European law)</li></ul>Domestic exemption for intra-group finance companies<br /><ul><li>Interest payments by a qualifying intra-group finance company to a non-Belgian tax-resident affiliate are fully exempt from WHT</li></ul>Non-resident<br />Belgian FinCo<br />Loan<br />WHT ?<br />Interest payment<br />February 2011<br />38<br />
  82. 82. WHT exemption for intra-group financing companies<br />Intra-group finance company<br />Legal conditions<br /><ul><li>Belgian tax residence or Belgian permanent establishment
  83. 83. Part of a group of associated companies
  84. 84. Only activities for the benefit of group companies (‘intra-muros’)
  85. 85. Services of an exclusively or predominantly financial nature (e.g. lending and borrowing)
  86. 86. Only funded by companies for own or group companies’ financing
  87. 87. No substantial participations held</li></ul>February 2011<br />39<br />
  88. 88. WHT exemption for intra-group financing companies<br />Intra-group finance company (cont’d)<br />Ruling office clarifies<br /><ul><li>Services of an exclusively or predominantly financial nature?
  89. 89. Personnel? Financing activities do not necessary need the involvement of many personnel
  90. 90. In practice tested via financial indicators (e.g. financial assets / total assets; financial revenue / total revenue).
  91. 91. E.g. decisions no. 500.111, 800.304, 800.371, 800.459 and 2010.151</li></ul>February 2011<br />40<br />
  92. 92. Waiver of NID<br />2<br />
  93. 93. Waiver of NID<br />Belgian NID<br /><ul><li>NID provides for tax deduction on adjusted Belgian GAAP equity
  94. 94. Efficient use of NID may result in very low ETR on financing activities, e.g. if interest rate is close to NID-rate</li></ul>But monitor anti-abuse!<br /><ul><li>Some countries have anti-abuse legislation targeting structures which result in low ETR
  95. 95. E.g. - CFC legislation (e.g. Germany and Italy) - Denial of interest deduction (e.g. Sweden)</li></ul>ParentCo<br />! CFC !<br />Non-resident<br />Belgian NIDco<br />! Interest deduction !<br />Loan<br />February 2011<br />Interest payment<br />42<br />
  96. 96. Waiver of NID<br />Solution<br /><ul><li>By waiving part of the right to NID, the ETR can be managed
  97. 97. Waived NID is permanently lost
  98. 98. Quid: sufficient for anti-abuse-country?</li></ul>Accepted by Belgian tax authorities?<br /><ul><li>Yes!
  99. 99. Parliamentary question no. 15066 dd. 17/4/2007
  100. 100. Circular letter no. Ci.RH421/574.945 dd. 9/10/2008
  101. 101. Separate box provided in corporate income tax return
  102. 102. Ruling decisions no. 700.306, 700.329, 700.444 , 800.280, 900.234 and 900.472</li></ul>February 2011<br />43<br />
  103. 103. Waiver of debt<br />3<br />
  104. 104. Waiver of debt - Principle<br />Advice Ruling Office dd. 22 June 2009<br /><ul><li>Financial support to groupcompanies to safeguardreputation of group (going concern) is acceptable</li></ul>Creditor (BelCo)<br /><ul><li>Deductibleifconditional(i.e. return to betterfortune) (section 49 BITC)
  105. 105. Sufficient net equityneeded</li></ul>Note: Foreigngrantor: return to betterfortune is notrequired<br />Debtor (BelCo)<br /><ul><li>Exceptionalprofit
  106. 106. Compensationwithcarried forward taxdeductionsifnotabnormal/gratuitousbenefits (section 207, 2° BITC) </li></ul>February 2011<br />45<br />
  107. 107. Waiver of debt - Exampledecision<br />Decision no. 2010.143 dd. 27 April 2010<br />Facts<br /><ul><li>B is loss making and negative net equity
  108. 108. Financial engagement of A to B
  109. 109. B is still in going concern as a result of engagement of A
  110. 110. A grantsloan to B </li></ul>Transaction<br /><ul><li>Conditionalwaiver of debt (capital + % accrued interest) by A to B</li></ul>Decision<br /><ul><li>Exceptional profits for B
  111. 111. Compensation of losses in respect of B
  112. 112. Tax deductible professional expenses in respect of A</li></ul>BelCo A<br />100%<br />BelCo B<br />February 2011<br />46<br />
  113. 113. Transfer pricing<br />4<br />
  114. 114. <ul><li>In most recent ruling decisions, specific attention is given to the individual credit profile of the borrower
  115. 115. However, if it can be supported by factual elements, such individual credit profile can be influenced by implicit group support.
  116. 116. Various pricing sources can be taken into account to determine the credit spread / interest rate (group’s funding transactions, quoted bonds, etc.)</li></ul>Long term financing<br />February 2011<br />48<br />
  117. 117. BelgCo provides various intragroup financing activities, including long term funding<br /><ul><li>Interest rate = Group’s cost of funding + margin based on the characteristics of an borrowing entity (the borrowing entities are divided into 7 categories).
  118. 118. Credit risk classification based upon ‘CreditModel’ of S&P, from AAA to CCC
  119. 119. Ruling indicates credit risk classification takes into account “group solidarity”
  120. 120. New affiliates receive the CCC credit rating to start
  121. 121. Margin determined based on a yearly average Fair Market Yield Curve (Bloomberg)
  122. 122. Each year, the yearly average spreads are updated </li></ul>Long term financingDecision 2010.159<br />February 2011<br />49<br />
  123. 123. <ul><li>BelCo grants long term credit lines (maturities between 1 and 10 years)
  124. 124. Spreads applied reflect risk profile of borrower.
  125. 125. The risk profile is based on a credit scoring model that takes into account:
  126. 126. Amount of equity
  127. 127. Profitability
  128. 128. Debt leverage
  129. 129. Importance of operational activities
  130. 130. The financial analysis will be based on US GAAP (for US group entities) and IFRS figures (non-US group entities)
  131. 131. Scope of the ruling does not cover the decision on the maturity of the credit line (this decision has to be motivated to the local tax inspector).</li></ul>Long term financing Decision 900.185<br />February 2011<br />50<br />
  132. 132. The ruling covers the spread to be applied to the cash pool activities<br /><ul><li>Currency risk: BelCo has concluded an agreement with an external bank to hedge currency risk.
  133. 133. There are no internal comparables, except the “master account”. Therefore, the spreads are based on the master account conditions.</li></ul>Cash pool activitiesDecision 900.185<br />cash shortfall: Euribor 1 month + y Bps<br />Participant<br />CPL<br />excess cash : Euribor 1 month - y Bps<br />February 2011<br />51<br />
  134. 134. Factoring servicesDecision 900.406<br />Factoring services<br /><ul><li>Pre-financing accounts receivable
  135. 135. Administrative support
  136. 136. Transfer of insolvency risk
  137. 137. Transfer of currency risk</li></ul>X<br />Y<br />Factoring fee = <br />February 2011<br />52<br />
  138. 138. Factoring servicesDecision 900.406<br />Factoring fee is updated on a yearly basis:<br />[ Reference interest rate + pre-financing margin + Insolvency risk fee ]<br /> * (Average Days Outstanding /360)<br />+ administration fee of 20Bps<br />February 2011<br />53<br />
  139. 139. Formal guarantee feeDecisions 900.252/2010.159<br /><ul><li>Formal guarantees are provided within the group by X
  140. 140. Ruling for the payment of a guarantee fee for the formal guarantee provided by X</li></ul>X<br />Other group members of the group<br />Guarantee fee<br />loan<br />Interest payments<br />Formal guarantee<br />For loans or credit lines<br />Bank (L)<br />February 2011<br />54<br />
  141. 141. Formal guarantee feeDecisions 900.252<br />The guarantee fee =<br /><ul><li>Interest rate applied if no guarantee (based on estimated risk profil of subsidiary</li></ul>Minus<br /><ul><li> Interest rate effectively applied by the bank</li></ul>Other ruling (2010.159) also makes explicit reference to implicit group support to determine the stand-alone rating<br />February 2011<br />55<br />
  142. 142. Commitment feeDecisions 900.252/2010.159<br /><ul><li>Various group entities have entered into a credit line contract with an external bank.
  143. 143. The various entities are draw from this credit line. All these entities are jointly liable (cross guarantee)
  144. 144. A commitment fee is due by the parent company on the total undrawn amount
  145. 145. Individual credit limits are determined for each group entity.
  146. 146. The commitment fee is recharged (without mark-up) to the various group entities in proportion of their individual credit limits.</li></ul>February 2011<br />56<br />
  147. 147. Thank you!<br />© 2011 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.<br />